S&P 500 (SPY) Tries To Gain More Ground Despite Powell’s Comments

Key Insights

  • Hawkish commentary from Fed Chair Powell put some pressure on leading tech stocks. 
  • Healthcare and financial stocks enjoy strong support today. 
  • S&P 500 needs to settle above 4015 to continue its rebound.

S&P 500 Tries To Continue Its Rebound

S&P 500 is swinging between gains and losses today as leading tech stocks have once again found themselves under pressure. Apple, Alphabet, Amazon are down by about 1%.

Today, traders focused on the hawkish comments from Fed Chair Jerome Powell, who highlighted the importance of Fed’s fight against inflation. Treasury yields moved higher, which was bearish for growth stocks and put some pressure on S&P 500.

At the same time, it should be noted that demand for stocks is visible in the healthcare and financial segments. For example, big banks like JP Morgan, Citigroup, Morgan Stanley are up by about 2% today.

S&P 500

S&P 500 failed to settle above the 4000 level and pulled back. Currently, S&P 500 has settled between the support at 3950 and the resistance at 3980. In case S&P 500 declines below the 3950 level, it will gain additional downside momentum and move towards the next support level at 3915.

On the upside, S&P 500 must settle above 4015 to have a chance to gain sustainable upside momentum. A move above 4015 will open the way to the test of the next resistance level at the 20 EMA at 4035.

Snap Rallies As Memo Highlights Growth Ambitions

Snap is up by more than 7% today as traders react to the internal memo that was sent by the company’s CEO Evan Spiegel. According to the memo, the company plans to grow the user base to 450 million by the end of the next year.

Gamestop has also enjoyed some support today and made an attempt to settle above the $26 level after the company revealed its new partership with the crypto exchange FTX. Gamestop stock has been under serious pressure in recent weeks, and it remains to be seen whether the new crypto partnership will boost interest in the meme stock.

From a big picture point of view, the market needs additional catalysts to continue its rebound. Most likely, trading will remain highly volatile ahead of the Fed decision, which will be released on September 21. While traders look ready to buy stocks after the major pullback, the hawkish Fed may limit their appetite for risk.

For a look at all of today’s economic events, check out our economic calendar.

S&P 500 (SPY) Remains Under Pressure As Traders Cannot Find Positive Catalysts

Key Insights

  • Stocks are losing some ground as traders remain cautious ahead of the Non Farm Payrolls report, which will be released on Friday. 
  • Companies announce major layoffs, which may have a material impact on the job market in the upcoming months. 
  • A move below 3980 will push S&P 500 towards the support level at 3950.

S&P 500 Tries To Settle Below 3980

S&P 500 is trading near the support at the 3980 level as stocks do not have enough catalysts to rebound after the recent sell-off.

Today, the U.S. released ADP Employment Change report, which indicated that private businesses added 132,000 jobs in August, compared to 268,000 jobs in July.

There is a visible slowdown in the job market, but it remains to be seen whether the Fed will pay attention to this slowdown as high inflation remains the biggest problem.

Traders should also keep in mind that ADP Employment Change report and the market-moving Non Farm Payrolls report, which will be released on Friday, often paint different pictures.

S&P 500

From a technical point of view, S&P 500 is trying to settle below the support level at 3080. The modest attempt to rebound faced strong resistance near the 4000 level. There is plenty of room to gain additional downside momentum, so S&P 500 may quickly move towards the next support at 3950 in case it manages to settle below 3980.

Bed, Bath & Beyond Slides After Strategic Update

Today’s trading is choppy as the market lacks positive catalysts. However, the selling pressure is less intense after the big sell-off in recent trading sessions.

Bed, Bath & Beyond is down by 22% after the release of its strategic update. The company will cut 20% of jobs and close approximately 150 stores. To boost liquidity, Bed, Bath & Beyond will launch an at-the-market offering program for up to 12 million shares of common stock. The potential stock offering is the main driver behind the sell-off.

HP  is down by 7% after the release of the company’s fiscal 2022 third quarter results. The company missed analyst estimates on revenue and cut guidance for the full year 2022.

Snap gained 10% after it confirmed that it would cut 20% of its workforce. While the news provided support to Snap stock, traders should note that many companies have already announced layoffs, which will have a negative impact on job reports in the upcoming months.

For a look at all of today’s economic events, check out our economic calendar.

Tech Giants Hover Above the Storm

The news on Tuesday, July 26th coming from both the Microsoft (MSFT) and Alphabet (GOOG) camps with their recently published earnings reports is a sigh of relief for investors and is so far having a calming effect on Wall Street, with both companies only missing their earnings estimates by a small margin. They’re showing that they may just weather the troubling conditions currently plaguing the market as a whole.

Although globally it seems the landscape is changing with what drives business in recent times, as evidenced by the tech-heavy NASDAQ losing around 26% of its value this year, a few companies are innovating just enough to stay above their smaller competitors.

It’s all about taking advantage of changing consumer habits

Both companies reported that in addition to other segments of their businesses, their cloud and advertising services were a large part of the reason for their better than expected (or feared) results.

Much of the world has been forced to adjust their behavior over the last few years, with many spending more time online during the pandemic, whether it was working from home or shifting their buying habits, so showing growth in these areas would seem to make logical sense.

The CEO of Alphabet and Google, Sundar Pichai, commented on this in his statement, saying, “The investments we’ve made over the years in AI and computing are helping to make our services particularly valuable for consumers, and highly effective for businesses of all sizes. As we sharpen our focus, we’ll continue to invest responsibly in deep computer science for the long-term.”

Microsoft executive vice president and chief financial officer, Amy Hood, similarly commented, “In a dynamic environment we saw strong demand, took a share, and increased customer commitment to our cloud platform.”

Microsoft revenue totaled $51.9 billion and increased 12% over the same period last year. Their operating income increased by 8% to $20.5 billion. A net income of $16.7 billion saw a 2% increase, and the diluted earnings per share were $2.23, up 3%. The company showed its best ever sales for the cloud service, Azure, which were up 28%.

The company this month was also selected by Netflix to partner in their newest ad-supported, cheaper subscription service, a potentially significant new source of revenue.

Alphabet’s figures show its lowest growth rate since the 2020 April-June quarter, but they are still in an enviable position compared to most other non-tech companies in the current landscape. Its revenue totaled $69.69 billion and increased 13% compared to the same period last year. Their operating income increased to $19.45 billion, up from $19.36 billion. A net income of $16 billion saw a small drop from last year’s $18.52 billion, and the diluted earnings per share were $1.21, down from $1.36.

Google Cloud fell short of target earnings by around $1 million at $6.3 billion, and ads through YouTube came in under budget, with $7.3 billion as opposed to $7.5 billion in estimates.

So far, these two firms have avoided the pitfalls that other large businesses across the world have been experiencing. Supermarket giant Target’s shocking first-quarter earnings are one such example, as is Walmart’s predicted decline in profits for its upcoming report due in August. Many point to the ongoing issues with inflation, household costs increasing, and supply chain issues as having a huge impact on such retailers.

Online rivals in the social media world, Twitter and Snap have also just seen negative fourth-quarter earnings, with some analysts pointing to the fact that ad content can be more expensive through these types of social media as opposed to search engines, as it requires more than just text.

Both companies still communicate caution though

Despite the somewhat positive reports and forecasts, the quarter hasn’t been without its setbacks, and risks remain for both companies. Ever-increasing inflation, wages, fuel prices, raw material costs, and shortages from the China shutdowns are making some businesses that were formerly customers re-evaluate their spending on ads for marketing. The strong dollar has also meant a lower cash return after converting from foreign currency for both businesses.

Alphabet recently cut sales in Russia due to its aggression in Ukraine, and the company missed a huge opportunity to partner with Netflix in its new movement into ads on its service, to the advantage of Microsoft. The company announced back on July 20th that they would be implementing a hiring freeze for a few weeks which seemed to be a worrying sign, but over the whole quarter, there was actually an increase of around ten thousand new employees.

Additionally, antitrust regulators across most markets have also impacted Google’s share of the revenue from app sales.

Microsoft has seen a drop off in sales of its PC’s compared to the previous year, and a slight drop in advertising spending has also had a small impact. The company is also hitting the brakes on hiring. In an effort to achieve “structural adjustment,” Microsoft has cut jobs, yet plans to add more. This time, the layoffs affected less than one percent of its 180,000-person workforce and were distributed across geographies.

How the market responded

Tuesday’s regular trading session ended with a loss of 2.3% for shares of Alphabet. But the company’s shares went up around 5% on the back of the announcement in after-hours trading. Microsoft ended the day with a loss of 2.68%, but its shares were also bolstered by about 5% after the company published its earnings.

Traders seem optimistic about the companies’ ability to take the necessary steps to adapt to the new macroeconomic environment and continue improving their financial situation. ActivTrades’ sentiment feature on the left part of the below chart shows that the sentiment for both companies is highly bullish, with 85% of the ActivTrades community buying Alphabet and 95% buying Microsoft.

Daily charts of Microsoft and Alphabet – Source: ActivTrades’ online platform (ActivTrader)

Oil, Gold and Forex – Stocks Recover Amid a Fragile Tape on Moderated Fed Language

Global Macro and Stock Markets Analysis

Consumer stocks are still in focus as recession fears remain at the forefront. And with the negative feedback loop magnifying recession and growth fears, investors run for cover on the first signs of danger.

It is hard to believe that Snap can have this much market impact, but this comes amid a fragile tape – soon after Target CEO Brian Cornell’s comments that the consumer world had shifted materially in the last 13 weeks.

However, there has been a distinct change of tone from the Fed over the last couple of weeks, allowing investors to sift more comfortably through the carnage. While still hawkish, the FOMC has moderated its guidance, with Atlanta Fed’s Bostic talking about a potential pause in the hiking cycle in September and St Louis’ Bullard switching from talk of a 75bp hike to the potential of rate cuts late next year.

Investors will not turn to the FOMC minutes for clues about how officials think the policy outlook will shape beyond the next two meetings.

The September gathering is a potential pivot point for policy. But Fed pricing is coming out of the market for September, with traders now seeing a 37% chance for a 50bp hike.

Oil Fundamental Analysis

It was a reasonably quiet session for crude prices by current standards. Concerns around the number of Covid cases in Beijing initially weighed on prices Asia, but with physical oil brokers struggling to find buyers despite the deep discount for Urals, prices recovered

With explicit bans on importing Russian crude in the US and UK, and oil companies reluctant to buy even without formal legal obstacles, self sanctions are still causing supply shortages.

Although purchases by India and China have increased, neither of these countries has an unlimited appetite for Russian crude. Russia may struggle to find replacements for European buyers if, as seems likely, there continues to be a collective move away from Russian energy.

Gold Fundamental Analysis

Gold investors are starting to notice the softer change in the FED language, and dips to $1850.00 are met with solid support. Traders will be looking to the FOMC minutes for policy hints beyond June and July, as September rate hike expectations could be hugely pivotal for Gold prices.

FOREX Fundamental Analysis

Hawks on the ECB seem to be out in force again yesterday, giving the EURO a lift when FED pricing is coming out of the market for September, creating a bullish confluence for the EURUSD

The FX market seriously considers the threat of higher ECB rate hikes, but not the aftermath. Raising rates into positive territory adds a monetary brake to an already vulnerable economy.

We should expect further upside for EURUSD after ECB President Christine Lagarde told Bloomberg TV she expects rates to be positive at the end of Q3. While her comments do not differ from the ECB voices heard over the past two weeks, they are a long way from her remarks at the last ECB press conference. The market has been trading EURUSD from the short-side for some time and is forced to start to reduce given the price action after the unified shift in ECB language.

For a look at all of today’s economic events, check out our economic calendar.

Snap Is Down By 38%, Here Is Why

Key Insights

  • Snap says that the economic situation is worse than previously expected. 
  • The company believes that its Q2 adjusted EBITDA will fall into the negative territory. 
  • Snap revenue growth is also expected to slow down. 

Snap Stock Falls After Q2 Warning

Shares of Snap found themselves under strong pressure after the company warned investors that the economic situation deteriorated faster than expected.

As a result, Snap expects that it will report revenue and adjusted EBITDA below the low end of the previous Q2 guidance range. In the first quarter report, Snap  expected to report Q2 revenue growth of 20% – 25% on a year-over-year basis. Adjusted EBITDA was estimated to be between breakeven and $50 million.

The new guidance presented by Snap implies that it will report negative adjusted EBITDA in the second quarter, while its revenue growth would be below 20% on a year-over-year basis.

Not surprisingly, the stock found itself under massive pressure. Shares of other social media companies like Pinterest, Twitter, and Meta are also losing ground at the start of the trading session.

What’s Next For Snap Stock?

Snap stock has lost more than 50% of its market capitalization since the beginning of this year ahead of today’s trading session, and is already down by more than 35% at the start of today’s trading.

Analyst estimates have been moving lower in recent months. Currently, the company is expected to report earnings of $0.34 per share in the current year and earnings of $0.81 per share in the next year, so the stock is trading at 18 forward P/E.

However, these levels do not look cheap as analyst estimates will certainly move even lower after Snap’s warning. The company expects that its growth will slow down while its adjusted EBITDA will fall into the negative territory. Both news are extremely bearish for the stock. In this light, it remains to be seen whether Snap stock will get any support in the near term.

To keep up with the latest earnings updates, visit our earnings calendar.

Buyers’ Strike Ahead of Snap Report

Snap Inc. (SNAP) reports Q1 2022 results after Thursday’s closing bell, with analysts forecasting a profit of $0.01 per-share on $1.07 billion in revenue. If met, earnings-per-share (EPS) will mark a slight improvement compared to the $0.00 reported in the same quarter last year. The stock rallied 58.2% in February after beating Q4 expectations and raising Q1 guidance but the uptick followed a one-day 24% plunge to a 16-month low. Price action has made no progress since the buying spike, grinding sideways in the 30s.

 User Growth Outside the States

Some analysts see “compelling pockets of user growth opportunity” outside of the United States, where a saturated social media market and iOS privacy changes have weighed on profit margins. Piper Sandler’s Thomas Champion is looking to Japan, Mexico, Brazil, and Italy for growth, tapping into an estimated 800+ million addressable monthly users in the top 15 GDP countries. As he sees it, Snap has 2% to 31% penetration in those targeted nations, offering fresh eyeballs to build market share.

Bullish fervor is growing ahead of the report, even though the stock has fallen 22% in the last two weeks. Citigroup, Rosenblatt, Benchmark, and Deutsche Bank have all issued ‘Buy’ ratings since March while legendary hedge fund manager Stanley Druckenmiller bought 1.4 million shares in February. Even so, accumulation remains stuck near an 18-month low, reflecting risk aversion for social media stocks after Meta Platform Inc.’s (FB) 50% haircut since September.

Wall Street and Technical Outlook

Wall Street consensus stands at an ‘Overweight’ rating based upon 29 ‘Buy’, 3 ‘Overweight’, and 10 ‘Hold’ recommendations. No analysts are recommending that shareholders close positions. Price targets currently range from a low of $39 to a Street-high $88 while the stock will open the session nearly $8 below the low target. This dismal placement highlights a major disconnect with Main Street investors, who incurred major losses when Snap gapped down and sold off nearly 70% in reaction to the disastrous Q3 2021 report.

Snap broke out above 2017 resistance in the mid-20s in October 2020, entering a strong uptrend that hit an all-time high at 83.34 in September 2021. It completed a bearish island reversal in October, entering a painful decline that wiped out more than 50 points into the February 2022 low. A post earnings bounce failed three attempts to mount 50-day moving average resistance, yielding sideways action that could easily test February support following an earnings shortfall.

Catch up on the latest price action with our new ETF performance breakdown.

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

Twitter Trading Higher After Meeting Q4 Estimates

Twitter Inc. (TWTR) is trading higher by 4% in Thursday’s pre-market after meeting Q4 2022 top and bottom line estimates. Average monetizable daily users (mDAU) rose 13% to 217 million, in line with guidance, while US mDAUs rose a mediocre 3% to 38 million, highlighting saturation on this side of the Atlantic. Total ad engagements fell 12% year-over-year while ad revenue rose 22% to $1.41 billion, indicating that individual advertisers are paying more for the service.

Failing to Meet Expectations

CEO Jack Dorsey stepped down in November, placing CTO Parag Agrawal at the helm. The decision triggered a major decline because the new leader is unseasoned and has made questionable comments about free speech. Twitter has also failed to monetize user engagement to the degree envisioned in several well-publicized initiatives, undermining investor sentiment at the same time that social media rivals are shedding revenue as a result of Apple Inc. (AAPL) iOS privacy changes.

Twitter entered 2022 on its back feet after analysts cut ratings in reaction to last year’s 21% loss but Snap Inc.’s (SNAP) surprise profit earlier this month has improved sector sentiment, contributing to a rebirth in buying interest. In addition, the company books a high percentage of advertising revenue through brand spending, rather than ads tied to the IDFA (identifier for advertisers), which has been impacted by iOS changes.

Wall Street and Technical Outlook

Wall Street consensus stands at a mixed ‘Hold’ rating based upon 5 ‘Buy’, 2 ‘Overweight’, 19 ‘Hold’, and 0 ‘Underweight’ recommendations. In addition, two analysts are recommending that shareholders close positions and move to the sidelines. Price targets currently range from a low of $32 to a Street-high $79 while the stock is set to open Thursday’s session about $10 below the median $50 target. This placement suggests modest upside in coming weeks.

Twitter broke out above 2018 resistance in the mid-40s in October 2020, entering a volatile uptrend that mounted the 2014 high at 74.73 by six points in February 2021 before turning tail in a failed breakout. The stock completed a double top breakdown in November when it violated May range support at 49.11, establishing resistance that will be hard to remount in coming months. In the meantime, the pre-market uptick has already reached and reversed at 50-day moving average resistance, suggesting price action will consolidate around the 40 level.

Catch up on the latest price action with our new ETF performance breakdown.

Disclosure: the author held no positions in aforementioned securities at the time of publication.

Why Snap Stock Is Up By 47% Today

Snap Stock Rallies After Strong Quarterly Report

Shares of Snap jumped after the company released its fourth-quarter report. Snap reported revenue of $1.3 billion and adjusted earnings of $0.22 per share, easily beating analyst estimates on both earnings and revenue. Snap stated that 2021 was its first full year of positive operating cash flow and free cash flow.

Daily active users (DAUs) totaled 319 million, up 20% on a year-over-year basis. This was a material success compared to the recent report from Meta Platforms, which showed a decline in DAUs and led to a major sell-off of Meta stock.

The average revenue per user (ARPU) increased from $3.49 in Q3 2021 to $4.06 in Q4 2021, serving as an additional bullish catalyst for Snap stock.

Yesterday, Snap stock was under significant pressure as traders sold the company’s shares “in sympathy” with the sell-off in Meta stock. However, Snap’s quarterly report was so strong that the stock gained more than 45% in just one trading session.

What’s Next For Snap Stock?

Snap’s gains look impressive, but traders should keep in mind that the company’s shares touched highs near the $83 level in September 2021, so the stock is still down by more than 55% from its all-time high levels.

In 2022, Snap is expected to report earnings of $0.53 per share, so the stock is trading at 68 forward P/E. Earnings estimates will likely move higher after the strong earnings report, but the stock will still remain in the high-PE zone.

In this light, the near-term performance of Snap stock will depend on whether the market is ready to buy into high-PE stocks again. Recent weeks have been volatile as traders were worried about high inflation and higher Treasury yields.

The yield of 10-year Treasuries is already close to the 2.00% level, which could put more pressure on expensive tech stocks. The recent sell-offs in high-profile names like Meta Platforms, Netflix, and PayPal have also hurt sentiment. Thus, it remains to be seen whether traders will be ready to push Snap stock higher after the strong one-day move.

For a look at all of today’s economic events, check out our economic calendar.

Social Media Giant Twitter to Post Earnings Per Share of $0.35 in Q4

The social media giant Twitter is expected to report its fourth-quarter earnings of $0.35 per share, which represents year-over-year growth of about 8% from $0.38 per share seen in the same period a year ago.

The company would post revenue growth of over 21% to $1.57 billion. Twitter expects revenues of approximately $1.5 billion to $1.6 billion in the fourth quarter of 2021. GAAP operating income is expected to range from $130 million to $180 million, according to ZACKS Research.

With a focus on engineering and products, Twitter expects to increase headcount and costs by 30% or more in 2021. In 2021, the company expects total revenues to grow faster than expenses.

Following Facebook’s disappointing earnings report on Wednesday, shares of social network operators Pinterest, Snap and Twitter all declined.

Twitter stock traded 5.50% lower at $34.48 on Thursday. The stock slumped over 20% so far this year after falling more than 20% in 2021.

Analyst Comments

“Lack of Negative Revisions and Relative Valuation: Valuation continues to be expensive, but we think investors are likely to continue to pay a premium for Twitter (TWTR) given 1) continued turnaround progress and 2) platform scarcity,” noted Brian Nowak, equity analyst at Morgan Stanley.

“Execution Risk Remains Around Driving Advertiser ROI: Advertiser ROI has clearly improved on Twitter, but the company needs to improve ad targeting and measurability to compete with the larger players. To do that it will have to further personalize the content that users see and use its data more effectively, both of which remain key strategic challenges (and priorities) for management.”

Twitter Stock Price Forecast

Twenty-one analysts who offered stock ratings for Twitter in the last three months forecast the average price in 12 months of $52.70 with a high forecast of $80.00 and a low forecast of $32.00.

The average price target represents a 49.97% change from the last price of $35.14. Of those 21 analysts, five rated “Buy”, 15 rated “Hold” while one rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price to $57 with a high of $79 under a bull scenario and $41 under the worst-case scenario. The investment bank gave an “Equal-weight” rating on the social media giant’s stock.

Several other analysts have also updated their stock outlook. Stifel started coverage with a hold rating and set the target price at $39. Bernstein cut the target price to $40 from $75. Jefferies lowered the target price to $40 from $45. MKM Partners slashed the price target to $51 from $77.

Technical analysis suggests it is good to sell as 100-day Moving Average and 100-200-day MACD Oscillator signals a strong selling opportunity.

Check out FX Empire’s earnings calendar

Top 4 Things Traders Have to Know Today

What is happening with Meta, Paypal and Spotify?

Spotify didn’t actually issue annual guidance, which seems to have exacerbated worries about potential subscriber growth potential. All three were down by double-digits in after hours trading at one point last night.

Competition is clearly much more fierce as larger players are starting to dial it in and use the latest technology to gain better traction i.e. Visa, Mastercard, etc. I also read reports this week that Apple is diving deeper into the payment and banking space and will soon be able to offer all kinds of options via the smartphone.

In simple terms, I wonder if PayPal executives could see they had a “growth” problem and that’s why they took a look at Pinterest a few months back. I heard rumors yesterday perhaps they might be looking at Robinhood.

At the moment the stock market just doesn’t seem real forgiving to those who swing and miss. On a somewhat positive note, Facebook disclosed they purchased back +$20 billion of their own stock in the last quarter.

Bulls are hoping for solid results from Amazon and Snap today to help prevent sentiment in the tech sector from creating more fallout. I’m not holding my breath!

Data to watch

Results are also due from Activision Blizzard, Biogen, Carlyle Group, Check Point, Cigna, Clorox, ConocoPhillips, Deckers Outdoors, Eli Lilly, Estee Lauder, Ford, Hanesbrands, Hershey, Honeywell, Ingredion, Merck, Pinterest, Quest Diagnostics, Royal Dutch Shell, SnapOn, Wynn Resorts, and Xylem.

On the economic data front, Factory Orders, the ISM Non-Manufacturing Index, and Productivity and Costs are due today. Productivity and Costs has become a more closely watched report as worries about climbing wages have grown. In the third quarter, productivity fell -5.2% (the most since 1960) and labor costs rose +9.6%.

Obviously, weakening productivity and rising costs is a bad combo for corporate profits so reversing this trend is a high priority. It may be tough to find much relief in the near-term with the labor market expected to remain extremely tight.

The shortage of workers has also been exacerbated by the latest Covid wave. ADP’s private payrolls report yesterday showed a decline of -301,000 jobs for January versus the estimate for a +200,000 gain, the first reported net job less since December 2020 according ADP.

Covid issue

Most analysts blame last month’s Covid surge for the decline and expect it is just temporary. The official January Employment Report on Friday is expected to show a gain of around +150,000 jobs, though the government has warned that the data won’t be reliable due to Covid-related reporting problems. Hopefully we’ll soon stop hearing that excuse as the Omicron Covid wave does seem to be burning itself out in the U.S. Case numbers across the country are about half of what they were in mid-January.

Hospitalizations have finally started to come down, too, which experts say is a more reliable measure. I hate to mention it but health officials are currently monitoring a mutated strain of Omicron known as “BA.2″… when does it end?

The standoff between Ukraine and Russia

Also still on the radar is the standoff between Russia and Ukraine. The U.S. is now readying to send more than +3,000 troops to bases in Eastern Europe as new satellite images appeared to show an even further increase in Russian troop buildup on Ukraine’s borders. Whether or not war is a realistic threat or not, the climbing tensions continue to stoke the flames in the energy markets.

Brent crude futures are trading near $90 as OPEC struggles to meet production targets and global physical supplies continue to tighten. The 19 OPEC+ countries with quotas underperformed their production targets by -832,000 b/d in December. Russia is currently the top OPEC+ producer, so any disruption to those supplies runs the risk of shooting oil prices even higher. Take note the front-end of the natural gas market is up over +50% in the first month of the new year. It’s certainly going to be a wild ride in 2022!

 

Brace Yourself For Another Wild Month In Stock Markets

For the year, the Dow is down -6%, the S&P 500 is down just over -9%, and the Nasdaq has lost -14.7%. The previous record-holder is January 2009, an ugly moment for the economy, when the stock market fell -8.6%. In addition, the VIX – aka the CBOE Volatility Index – has actually dropped back to around 31 after topping 37 earlier this week, its highest point since November 2020.

Keep in mind, the index isn’t registering anywhere close to levels reached during other periods of “extreme” volatility. For example, the index, which is measured between zero and 100, hit its highest point of almost 83 during the financial crisis in 2008. Its most extreme point during the pandemic was around 66 in March 2020. So, by comparison, this week’s volatility has been rather mild.

Federal Reserve

Some insiders equate the wild swings in stock prices to investors, particularly “big money,” trying to establish a new baseline for stock valuations minus the Fed’s easy money policies that have driven a massive amount of cash into markets since the pandemic began in 2020.

At its height, the Fed was pumping as much as +$120 billion per month into the system via its asset purchase program, ballooning its balance sheet to now nearly $9 trillion.

At the same time, the Fed has held its benchmark rate at near-zero and, before that, hadn’t even attempted to raise rates since 2018, and then only briefly. The last full-cycle of rate hikes was 2015. What’s more, investors haven’t really had to factor for inflation since the early 90s and it hasn’t been this high since the 80s.

Bottom line, whatever the new “normal” ends up looking like, it will be dramatically different from the pre-pandemic investing landscape. I’ve heard several large stock traders saying it seems to be the return of Alpha instead of the race to levered Beta. I hear others on Wall Street referencing it to a bit of league recreational youth baseball team where everybody now gets an award simply for participation, but then kids run into a rude awakening when performance really starts to matter.

It feels like we are there in the stock market; every business that was coming into the market was simply being rewarded with participation points, now people are starting to keep a real scorebook and counting the strikeouts and runs scored.

Economy still roars

The good news is that the U.S. economy continues to roar. Historically, a combination of moderate inflation and moderate interest rates has led to some of the biggest boom times for U.S. Last week, the Commerce Department said Q4 Gross Domestic Product (GDP) grew at an annualized rate of +6.9%, stronger than Q3’s +2.3% and well above Wall Street expectations of around +5.7% growth.

Consumer spending climbed at a +3.3% annual pace led by a +4.7% increase in services spending. But the real stand out was private investment which rocketed +32% higher, boosted by a surge in business inventories as companies stocked up to meet higher customer demand. Rising inventories, in fact, contributed nearly +5% to Q4 GDP growth.

On the one hand, the inventory build is positive because it indicates an easing of supply chain dislocations that should in turn help with inflation pressures. On the other hand, many economists note that the big boost from retailer and wholesaler restocking is not likely to be repeated.

Companies will also likely start to unwind at least some of that inventory in the quarters ahead, which could drag overall 2022 GDP, especially if consumer spending also drops off. And investors are more closely tracking consumer behavior as inflation continues to rise.

With consumer spending accounting for about 70% of the U.S. economy, any signs that belts are tightening or moods are getting overly pessimistic will likely set off some alarm bells.

Data to watch

Turning to next week, it will be another busy one for both key economic data as well as earnings. The main economic data highlight will be the January Employment Situation on Friday. Other key data includes ISM Manufacturing, Construction Spending, and the JOLTS report on Tuesday; ADP’s private payrolls report on Wednesday; Productivity & Costs, Factory Orders, and the ISM Non-Manufacturing Index on Thursday.

Earnings wise, results are due from NXP Semiconductor and Trane on Monday; Advanced Micro Devices, Alphabet, Amgen, Chubb, Electronic Arts, Exxon, General Motors, Gilead Sciences, Match Group, PayPal, Sirius XM, Starbucks, and UPS on Tuesday; AbbVie, Aflac, Allstate, Boston Scientific, CNH, Corteva, D.R. Horton, Ferrari, Humana, Johnson Controls, Meta (Facebook), MetLife, Novartis, Novo Nordisk, Qualcomm, Siemens, Thermo Fisher, TMobile, and Waste Management on Wednesday; Activision Blizzard, Amazon, Biogen, Carlyle Group, Check Point, Cigna, Clorox, ConocoPhillips, Deckers Outdoors, Eli Lilly, Estee Lauder, Ford, Hanesbrands, Hershey, Honeywell, Ingredion, Merck, Pinterest, Quest Diagnostics, Royal Dutch Shell, Snap, SnapOn, Wynn Resorts, and Xylem on Thursday; and BristolMyersSquibb, CBOE, Phillips 66, Regeneron, and Sanofi on Friday.

Bottom line, brace for another huge week of extreme volatility.

META: Specifically for Metaverse Exposure but Not Yet Convincing

After Mark Zuckerberg renamed Facebook to Meta Platforms (FB), the metaverse has suddenly become a hot topic with search interest on Google Trends peaking at a value of 100, signifying immense popularity. However, there is currently no universally accepted definition of the metaverse apart from some key words like “virtual reality”, or “advanced Internet”. Learning from Blockchain’s world where there are already metaverse projects like Sandbox where land can be exchanged against payments of millions of dollars, it could be defined as a virtual universe with a functional economy.

Of course, this definition is not straightforward and to be frank, no one knows exactly what shape the metaverse will take. But, for investors willing to invest hard-earned money in ETFs like the Roundhill Ball Metaverse ETF (META), it is important to understand which sectors are most likely to benefit. Some use cases are already being proposed such as attending a virtual concert, taking an online trip or creating digital art in the form of blockchain-powered NFTs or Nun Fungible Tokens.

Now, these applications will require a lot of computing power due to increased utilization of artificial intelligence and augmented reality (“AR”). At the same time, for communication purposes, there will be requirement for next generation Wi-Fi and 5G. Roundhill Investments does list some sectors like Compute, Networking, Virtual platforms, Interchange standards, etc from where they choose companies to be included in their fund, but for illustration purposes, I provide a chart which I recently used it in an article on VanEck Semiconductor ETF (SMH).

Description: https://responsive.fxempire.com/v7/_fxempire_/2021/12/word-image-274.png?func=cover&q=70&width=436

Source: Chart prepared by author using data from IEEE Spectrum and augmented to highlight metaverse demand

This chart basically shows semiconductor revenues per sector (with most coming from computing at 34.5%), but, since I have highlighted the technologies needed to build the metaverse, I use it to explore how META’s holdings fit the “meta” investment rationale.

The META rationale

First, META tracks the Ball Metaverse Index, the first index designed to track the performance of the metaverse.

Second, the ETF’s main holding is NVDIA (NVDA) at 8.34% of total assets, also happens to constitute a significant chunk of SMH’s basket. Now, as a designer of graphics processing units for the gaming and Bitcoin markets, this chip play whose products are vital for computing should be one of the main beneficiaries as a building block for everyone’s “virtual space”. Additionally, NVDIA is a system-on-a-chip unit’s provider for the mobile computing and the automotive industry.

Third, there is FB itself, and with more than 2.9 billion users as at the third quarter of 2021, and its success as a highly addictive social networking brand, there is no doubt that it will profoundly change our lives by rendering more virtual than ever, helped by a Covid-induced restriction in physical interactions.

https://static.seekingalpha.com/uploads/2021/12/26/49663886-16405745860315373.png

Source: RoundHill Investments

As for software plays like Microsoft (MSFT), Autodesk (ADSK), Unity Software (U), the metaverse is already proving to be a game-changer for working from home due to Covid. Continuing along the same thought process, instead of seeing their colleagues on a video call screen, employees could join them in a virtual office. Here, one of the main benefits of the metaverse is believed to be “presence,” meaning the feeling of physically engaging places and characters instead of looking at them through a laptop or smartphone screen.

Coming to Apple (AAPL), it has one of the world’s largest AR platforms with hundreds of millions of AR‑enabled devices, as well as thousands of related apps on the App Store. Now, one of the essential building blocks of the metaverse is interoperability whereby users must be able to move throughout the metaverse, while effortlessly make the transition to the physical world. For this purpose, they need AR devices which are supported by Apple’s iPhones. There is also an analyst forecasting that Apple’s “mixed reality headset will come out in the late 2022 or early 2023”, with the Apple Glasses to follow in 2025.

Apple should also benefit through its gaming division just like Roblox (RBLX), an online game platform which allows users to play games created by other users. In a metaverse scenario, one can envisage players retaining their avatar while hopping from one game to another or even a virtual shop for purchasing purposes, regardless of the brand of the user’s device.

After painting an enthralling picture of META, I now address some pain points.

META’s shortcomings

Since the concept of metaverse is relatively new, there will be many use cases that will arise in the future, but the space is also likely to be under intense regulatory scrutiny as lawmakers become wary of the power of big techs at extending their control on our social lives to a further degree through virtual reality. Governments may for example restrict the number of hours we can spend in the metaverse just like China is restraining the number of hours children can play games. Furthermore, Apple with its IOS operating system is only a part of the global smartphone ecosystem and it will have to be a metaverse which also encapsulates the Android operating system by Google (GOOG) with its brand of AR. META certainly includes the Android play, but only at a paltry 1.71% of holdings.

Pursuing further, META does include pioneers in content, commerce, and social for the metaverse, such as Sea (SE), Amazon (AMZN) and Snap (SNAP), and I also noted that it includes web infrastructure companies like CloudFlare (NET). On the other hand, I noted the absence of wireless plays from its portfolio. Also, the fund managers do not mention Industrial 4.0 applications, namely 3D printing which is crucial to allow transition from the virtual to the physical world.

Looking for further support from the share performance side, despite all these hot talks about the metaverse and META having already crossed the $900 million in total assets under management within six months, it managed to produce a meager 2.59% gain during this time. This is dwarfed by SMH or even the Technology Select SPDR ETF (XLK), with both these two funds producing above 17% gains in the same time period.

https://static.seekingalpha.com/uploads/2021/12/26/49663886-16405745860053453.png

Source: tradingview.com

This calls for a dose of realism.

Conclusion

There is no doubt that META is an innovative ETF with its index consisting of a tiered weight portfolio of globally-listed companies who are actively involved in the metaverse, but this whole concept is still new and rapidly evolving. I also like the fact that Roundhill Investments have also included companies like Block (SQ) and Electronics Art (EA), thus showing their perfect understanding of the Blockchain side of things.

Still, I am not convinced as to the percentage of asset held for each stock. Now, as an actively managed fund charging 0.75% in fees, the portfolio is likely to see rapid changes, but at this stage, it is preferable to wait. Finally, those who want early metaverse exposure, both SMH and XLK can be considered as proxy ETFs for this purpose, and come at lower expense ratios of 0.35% and 0.12% respectively.

Disclosure: I am long XLK.

Wrong Time to Buy Facebook

Facebook Inc. (FB) shook off growing political headwinds and Apple Inc.’s (AAPL) iOS 14 activity blocking technologies on Monday evening, gaining nearly 2% despite missing Q3 revenue estimates and issuing downside revenue guidance. The social media giant posted a profit of $3.22 per-share during the quarter, $0.04 better than expectations, while revenue rose a healthy 35.1% year-over-year to $29.01 billion, more than $500 million lower than consensus.

Apple Ad-Tracking Woes

Snap Inc. (SNAP) triggered a sector-wide decline last week after missing revenue estimates due to iOS 14’s negative impact on ad targeting. Facebook warned as well, noting “significant uncertainty we face in the fourth quarter in light of continued headwinds from Apple’s iOS 14 changes, and macroeconomic and COVID-related factors. In addition, we expect non-ads revenue to be down year-over-year in the fourth quarter as we lap the strong launch of Quest 2 during last year’s holiday shopping season.”

Facebook has even bigger issues to address in 2021, with whistleblowers describing questionable business practices that allegedly place profits over hate speech. In addition, the company was forced to delay the launch of Instagram Kids earlier this month after a whistleblower alleged it ignored in-house research about the negative effects on teenage girls. Despite the controversies, legislative action is unlikely because many members of Congress take large donations from Big Tech, making it unlikely they will pursue draconian solutions.

Wall Street and Technical Outlook

Wall Street consensus has been remarkably stable in 2021 despite those controversies, now standing at an ‘Overweight’ rating based upon 35 ‘Buy’, 4 ‘Overweight’, 11 ‘Hold’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $300 to a Street-high $500 while the stock is set to open Tuesday’s session more than $80 below the median $415 target. It’s clear from this placement, and the 50-point decline since September, that current events are having a negative impact on Main Street sentiment.

Facebook topped out just above 200 in 2018 and cleared that resistance level in May 2020, entering a strong uptrend that stalled above 300 in August. An April 2021 breakout made excellent progress into September’s all-time high at 384.33, ahead of a steep decline that sliced through 50-day moving average support a few days later. The selloff reached the 200-day moving average on Oct. 4, yielding an extended test that’s still in progress. Neither bulls nor bears have a major edge at the moment, telling sidelined investors to look elsewhere for profits.

For a look at today’s economic events, check out our economic calendar.

Disclosure: the author held Snap in a family account at the time of publication. 

Why Snap Stock Is Down By 23% Today

Snap Stock Dives As Apple’s Privacy Rules Put Pressure On Revenue

Shares of Snap found themselves under significant pressure after the company released its third-quarter results. The company reported revenue of $1.07 billion and adjusted earnings of $0.17 per share, beating analyst estimates on earnings and missing them on revenue.

The changes to Apple’s iOS platform put pressure on the advertising business. According to Snap, changes to ad tracking made more difficult to manage ad campaigns for iOS, while Apple-provided measurement solution did not work as well as Snap expected.

In addition, current supply chain issues and labor shortages reduced companies’ desire to advertise their products and services. Thus, Snap received a double hit from changes in Apple’s privacy policy and pandemic-related issues.

What’s Next For Snap Stock?

Currently, analysts expect that Snap will report earnings of $0.36 per share in 2021 and $0.8 per share in 2022, so the stock is trading at 72 forward P/E even after the major pullback.

Snap is richly valued like many tech stocks in the current market environment. At such valuation levels, Snap shares are very sensitive to any negative changes in the company’s growth outlook.

The hit from Apple’s privacy policy changes was bigger than the market and the company itself expected, and it remains to be seen whether Snap will be able to solve its Apple-related problems in the fourth-quarter of this year.

At the same time, the company will also have to deal with pandemic-related shortages which have put pressure on businesses’ desire to advertise their products. Judging by recent developments in various industries, these problems may persist well into 2022, so analysts may have to adjust their 2022 earnings forecasts for Snap.

The stock remains very expensive, and even speculative traders may wait for additional pullback before buying Snap shares. However, the general risk appetite remains strong, so Snap stock may get more support in case S&P 500 moves towards the 4600 level.

For a look at all of today’s economic events, check out our economic calendar.

Volatility Dead Ahead for Snap Shareholders

Snap Inc. (SNAP) reports Q3 2021 earnings after Thursday’s closing bell, with analysts looking for a profit of $0.08 per-share on $1.1 billion in revenue. If met, earnings-per-share (EPS) will mark an eightfold increase over the penny earned in the same quarter in 2020. The stock took off for the heavens after beating Q2 estimates by wide margins and raising guidance in July, jumping nearly 24%, but has barely budged in the last three months.

Third Quarter Under-Performance

MKM Partners’ Rohit Kulkarni previewed the report on Wednesday, noting “While SNAP shares hit new all-time highs on Sep. 24, they have faded since then, and have resulted in intra-quarter underperformance (-3%) vs. S&P 500 (+2%) since 2Q earnings. We agree with our technical analysis, we think Snap shares are likely to trade rangebound around its support and resistance levels, “low 70s” and “mid-80s” after earnings this week.”

Intra-quarter data compiled by Kulkarni looks promising, with the analyst expecting the company to beat Q3 top and bottom line estimates, but not by enough to attract new investment. In addition, he’s looking for trading after the release to focus on Q4 revenue guidance, which is not expected to exceed 50% year-over-year. The number of Q3 subscriber additions could also move the post-market tape, with current estimates around 1 million net adds.

Wall Street and Technical Outlook

Wall Street consensus stands at an ‘Overweight’ rating, based upon 26 ‘Buy’, 3 ‘Overweight’, 11 ‘Hold’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $42 to a Street-high $111 while the stock is set to open Thursday’s session about $13 below the median $88 target. The broad range between high and low highlights conflicting viewpoints on the intermediate outlook, which has translated into a volatile +/- 12% implied move after the release.

Snap posted an all-time low in single digits in 2018 and turned higher, returning to the 2017 high in the 20s in June 2020. It broke out on heavy volume in October, entering a trend advance that stalled at 73.59 in February 2021. The stock mounted the barrier in July but has made no progress since that time, grinding sideways in a trading range between low 70 and the mid-80s. It’s now trading in the dead center of the pattern, suggesting a major catalyst will be needed to break the deadlock.

For a look at today’s economic events, check out our economic calendar.

Disclosure: the author held Snap in a family account at the time of publication. 

Snap Perfectly Positioned for Rally Into Upper 80s

Snap Inc. (SNAP) broke out above five-month resistance after strong Q2 earnings in July and promptly went to sleep, grinding sideways in a dead pattern that’s now lasted for more than five weeks. Breakout buyers have failed to book a penny of profit during this period, with that single price bar acting as an impenetrable barrier. Even so, it’s nearly impossible to make a bearish call on the social media app because their growth has been spectacular in the last two years.

Growth Firing on All Cylinders

The company booked a surprise profit of $0.10 per-share during the second quarter, beating estimates by $0.11. Revenue rose a phenomenal 116.2% year-over-year to $982.11 million, more than $130 million higher than consensus. 293 million daily average users (DAUs) marked a 23% year-over-year increase, inducing executives to issue upside Q3 guidance that now expects between $1.07 and $1.085 billion in revenue, compared to prior $1.01 billion expectations.

Wedbush analyst Ygal Arounia raised his price target to $88 after the news, noting, “Snap delivered exceptional 2Q21 results both on the top line and EBITDA, with materially better than expected 3Q revenue guidance as well. The digital advertising market is clearly strong and picking up steam as the global reopening and strong economic environment moves forward. Snap is seeing strength across the board, from multiple verticals (including retail and restaurants), and across all its ad products.

Wall Street and Technical Outlook

Wall Street consensus stands at an ‘Overweight’ rating after a historic 456% return since the start of 2020, based upon 24 ‘Buy’, 3 ‘Overweight’, 11 ‘Hold’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $42.20 to a Street-high $110 while the stock is set to open Tuesday’s session about $12 below the median $87 target. This placement suggests that any positive catalyst will generate a rapid advance to new highs.

Snap completed a round trip into the 2017 high in the mid-20s in July 2020 and broke out in October, entering a sustained advance that stalled at 73.59 in February 2021. A shallow correction worked off overbought technical readings through time instead of price, ahead of a powerful one-day rally after Q2 earnings on July 23rd. A mid-August breakout attempt failed, yielding a slow downward drift that could now offer a low risk buying opportunity.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

Stock Index Futures Show Poise Ahead of Monday’s Open

The Dow Jones Industrial Average reached a milestone last week that will be tough to top this week. The index added more than 230 points on Friday to finish above 35K for its first time in history. Friday’s performance brings the Dow’s year-to-date gains to 14% and clinches four consecutive days of finishing in the green. It has been a little over three months since the Dow crossed the 34K threshold for the first time as the bulls continue to flex their muscles.

The S&P 500 and tech-heavy Nasdaq were both up more than 1% on Friday.

Stock index futures are basically flat with a slight leaning to the downside on Sunday evening as investors brace for Monday’s trading. Tech earnings are the name of the game this week. The oil price continues to rebound and is moving fractionally higher to above USD 72 per barrel on expectations that supply constraints will persist for the rest of 2021.

Stocks to Watch

Earnings season is in full swing. All eyes will be on Tesla on Monday when it reports its Q2 results after the closing bell. The company already revealed that it had more than 200K deliveries in the quarter, its best ever for a single quarter. Wall Street is largely expecting the EV maker to top analyst estimates with its earnings, which could fuel the stock higher. Tesla chief Elon Musk hinted at Tesla resuming bitcoin payments soon.

Separately, Snap Inc’s value ballooned by more than 23% on Friday on the heels of better-than-expected results on the top and bottom lines. The social media company’s results were fueled by a robust online ads market in addition to more daily active users.

If Snap’s earnings are any indication, good things could be ahead for tech giants Facebook, Google’s Alphabet and Amazon.com, which are on tap to report quarterly results this week.

Look Ahead

An FOMC meeting will unfold on Tuesday and Wednesday. Policymakers are not expected to roil the markets by shaking up monetary policy despite rising inflation, according to Wells Fargo economists. Meanwhile, investors will get the first glimpse into Q2 GDP on Thursday.

Lockheed Martin reports its quarterly results before the opening bell on Monday. Also this week, more earnings are in the pipeline, including the likes of Dow component Boeing.

U.S. Stock Markets Hit New Highs, Treasury Yields up as Choppy Week Ends

Megacap tech stocks and positive corporate earnings helped drive main U.S. indexes up again. Yields on U.S. Treasuries were also up, as was the dollar, with investors eyeing next week’s Federal Reserve meeting for hints on the U.S. economic recovery from the COVID-19 pandemic and when the central bank will pull back support for the economy.

“It’s certainly been a really strong run. For now it looks justified based on the strong earnings results. We got interest rate stability, which was helpful. As the economic recovery continues, as long as people are continuing to get out there despite the Delta variant, we think stocks can go higher,” said Jeff Buchbinder, equity strategist for LPL Financial. “We think the ride will get bumpier in the second half, but we think the bull market continues.”

The Dow Jones Industrial Average rose 238.2 points, or 0.68%, to close the week at 35,061.55, while the S&P 500 gained 44.31 points, or 1.01%, to 4,411.79. The Nasdaq Composite added 152.39 points, or 1.04%, to close at 14,836.99.

The greenback on Friday booked a second week of gains after a volatile few days as risk appetite waxed and waned.

The dollar index, which measures the greenback against a basket of six major currencies, was slightly higher on the day at 92.894. That was off a 3-1/2-month high of 93.194 hit on Wednesday.

For the week, it was up 0.1%, after rising 0.6% previously.

The yield on 10-year Treasury notes hovered around 1.3%, or almost 17 basis points higher than a five-month low set on Tuesday, but was still at the low end of a recent range. The benchmark note traded up 2.1 basis points to 1.288% after briefly rising above 1.3%.

“We’re closing out the week on a very nice trade, and it’s being driven by earnings primarily and earnings specifically in stocks that speak to the consumer, which is not a new story but it’s a story that adds momentum to the trade in the second half of the year,” said Peter Kenny, founder of Kenny & Co LLC, the parent company for Strategic Board Solutions and Kenny’s Commentary, a subscriber-based political and economic newsletter.

After declining earlier in the trading session, oil was set to end the week slightly up.

Investors have been assuming “things will improve, travel will increase,” said Steve Massocca, managing director at Wedbush Securities. “There are concerns about the Delta variant.”

Massocca added, “If that thesis is thrown into jeopardy, it put a hitch in the ‘giddy up’ in the market.”

Some parts of the United States are implementing mask mandates again due to new COVID-19 cases, while others have not, leading to confusion.

U.S. business activity grew at a moderate pace for a second straight month in July amid supply constraints, suggesting a cooling in economic activity, a report from data firm IHS Markit showed on Friday.

Positive corporate earnings helped the stock market. American Express Co jumped 1.7% after posting second-quarter profit that beat expectations.

Social media firms Twitter Inc and Snap Inc gained 3.8% and 24.5%, respectively, after their upbeat results.

Financial markets have swung from one direction to another this week as investors try to assess what the surging Delta variant means for the world economy.

After recording its steepest one-day drop since May on Monday, the S&P 500 stock index went on to post the biggest one-day jump since March a day later. Currency, bond and commodities markets have seen similar gyrations.

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Jessica DiNapoli; Additional reporting by Dhara Ranasinghe and Wayne Cole in Syndey; Editing by Ana Nicolaci da Costa, Will Dunham, Pravin Char, Dan Grebler and Raissa Kasolowsky)

 

Why Snap Stock Is Up By 22% Today

Snap Stock Rallies As Company’s Q2 Report Highlights Strong Growth

Shares of Snap gained strong upside momentum and moved to all-time high levels after the company released its second-quarter results.

Snap reported that its revenue increased by 116% year-over-year to $982 million, easily beating analyst estimates. GAAP loss of $0.10 per share and adjusted profit of $0.10 per share also beat analyst expectations.

The company noted that daily active users (DAU) increased by 23% year-over-year to 293 million, while the average revenue per user (ARPU) was $3.35. It should be noted that DAU increased in all segments and platforms, highlighting the breadth of Snap’s growth.

In the third quarter of 2021, Snap expects to report revenue of $1.07 billion – $1.085 billion. Adjusted EBITDA is projected to be $100 million – $120 million compared to $117 million in the second quarter.

What’s Next For Snap Stock?

The market was very impressed by Snap’s quarterly report, and the stock was up by as much as 22% at the time of writing. This is not surprising as the market remains hungry for growth, and Snap achieved healthy growth in various market segments and platforms.

Currently, analysts expect that Snap will report earnings of $0.22 per share in 2021. In 2022, the company’s profit is projected to grow to $0.67 per share, so the stock is trading at 115 forward P/E.

This is an extremely rich valuation but that’s what the market is ready to pay for a 117% revenue growth. As usual with the high-growth tech stories, the market is looking beyond the next year.

At the same time, rich valuation makes the stock vulnerable to any disappointing news. However, Snap has just released a great quarterly report, so such concerns should not have any material impact on the stock in the near term. The general market remains bullish due to the strong support from the Fed, and traders remain ready to buy expensive growth stocks, which is bullish for Snap.

For a look at all of today’s economic events, check out our economic calendar.

Snap Strength Bodes Well for 3rd Quarter Breakout

Snap Inc. (SNAP) is well-positioned to break out after Q2 2021 earnings on Jul. 20, even though the messaging app provider isn’t expected to post a profit. Price action in the last quarter has been extremely productive, shaking off a 20% decline into the upper 40s in May and carving a steady advance that’s now stretched within five points of February’s all-time high in the low 70s. Accumulation readings have followed suit, lifting to an all-time high.

Management Forecasting 50% Growth

There’s no argument that Snap needs to do a better job keeping users engaged in upgraded features that analysts believe will increase revenue through targeted advertising. Even so, management is forecasting 50% sustained growth in the next several years, raising high expectations ahead of the report. They’ll need to deliver on all fronts to make that happen, but a flurry of Q2 initiatives and updates seem to support that lofty prediction.

Stifel’s John Egbert posted a bullish note after Snap’s Partner Summit in May, noting “a number of product and business updates including an expanded set of augmented reality creation tools, new content monetization opportunities, more capabilities for developers via Snap Kit APIs/Games/Minis, and the company’s next generation Spectacles hardware. He also remarked that Snap now has “more than 500mm monthly active users globally, which compares to 280mm DAUs reported as of 1Q:21 and implies at least 56% daily engagement”.

Wall Street and Technical Outlook

Wall Street consensus now stands at an ‘Overweight’ rating based upon 26 ‘Buy’, 2 ‘Overweight’, 9 ‘Hold’, and 1 ‘Sell’ recommendation. Price targets currently range from a low of $42 to a Street-high $100 while the stock is set to open Wednesday’s U.S. session about $12 below the median $80 target. Given strong second quarter accumulation, this looks like a perfect set-up for a strong advance into the low 80s.

Snap rallied more than 300% in 2020 before topping out at an all-time high in the low 70s in February 2021. It sold off into the upper 40s in March, rounding out a trading range that has contained second quarter price action. A successful test at range support in May has stroked buying interest, lifting price into a test of the first quarter peak. At this point, all that’s needed for a breakout is a modestly bullish catalyst.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication.